Energy Resources in Argentina:
Analysis of Income
Marina Recalde
Smith and Ricardo

Adam Smith proposed the first definition of rent (1776:210). Smith defines rent as the price paid for land use, which is naturally the highest price the tenant can pay given the circumstances of the land. He also introduces the idea of rent as a monopolistic profit (MP). According to the author, the rent of land is a monopolistic price that is not related to owner investments, but rather to the farmer’s ability to pay. The analysis includes the idea of land ownership, and as such, the capitalist can be excluded from its usage. Moreover, the landowner chooses to act monopolistically, restricting the supply in case the land price was not what was desired.

Rent of land is a crucial point in Ricardo’s work analyzing the political economy (1817: 51-64). For Ricardo, land rent is always Differential Rent (dr). It is the result of the difference of productivity (difference in fertility) of two plots of land undergoing the production process. Thus, the existence of rent depends on the base idea that there are two lands of different qualities. Otherwise, if all land were of the same quality, one land plot would not produce more than another. Furthermore, certain factors play a fundamental role in this definition of rent. First, the scarcity of plots of fertile land and the assumption that the most fertile plots are always used first. Secondly, population growth drives food demand, which drives the need to increase production on marginal, less fertile land, where the cost of production is relatively greater. Thirdly, decreasing land yields play a key role. Finally, Ricardo (1817: 53-55) also acknowledges the concept of private property.

The dr, the surplus that corresponds to the more fertile (productive) land (deposit) above the natural price (production cost or exchange value) could, according to Ricardo’s analysis, be useful in the study of hydrocarbon income. Still, are the characteristics of the current global hydrocarbon market similar to the land markets analyzed by Ricardo? Is it possible to apply the concept of land rents to hydrocarbon income? Is the price of hydrocarbons a natural price, or an exchange value of the same? From this work’s perspective, and as we will develop in detail later on, the characteristics of the hydrocarbon market mean that the dr concept in its purest form is not entirely applicable. Some of these factors include the existence of high levels of concentration, which allows for, in combination with other characteristics of the resource, the establishment of prices that exceed the price of production, which results in income that exceeds the dr. This factor will be explained in greater detail in the following section.

Marx’s Contributions

The central foundation of the analysis that forms the basis of Marx’s ground rent theory (1894: T. iii, Cap. xxxviii-xliii) is the existence of private land property. This property grants landowners a monopolistic power over a natural resource, and as a result, they can keep a portion of the surplus generated in the production process. According to Fine and Saad-Filho (2004: 154-155), the foundation of Marx’s rent theory is the fact that private property acts as an obstacle to the accumulation of capital. There is an extraordinary profit from agriculture that does not come from capital, but rather is derived from greater productive work capacity in combination with the use of a natural, monopolizable force. This characteristic is not true for all general conditions of the production branches, but is true for those that use monopolized natural resources. This is due to the fact that natural resources cannot be reproduced. In other words, physical capital (created by man) cannot replicate this natural force.

Regarding the existence of different rents, Marx explicitly acknowledges the existence of two types of rents: Absolute Rent (ar) and Differential Rent (dr)3 (Marx 1894: T. iii, 709). However, he implicitly recognizes the existence of a third type of rent, a non-natural type, the MR, which does not depend on the supply conditions, but does depend on demand and arises from a monopoly price justified by the needs and buying appeal and the buyers’ solvency.4

2 For further analysis of this section, see Recalde (2010: 142-176).

3 Marx’s analysis encompasses two types of rent differentials: an extensive one, which he calls Rent Differential I (rdi), and an intensive one, which he calls Rent Differential II (rdii). For a more complete explanation of Rent Differential I and Rent Differential II, see El Capital, T. iii, Ch. xxxviii-xliii.

4 See: Marx (1894), T. iii, pp. 719.